German Federal Court of Justice decides on limitation period for consumers reclaiming administrative fees in loan agreement
In May 2014, the German Federal Court of Justice (the BGH) held that clauses in consumer loan agreements charging a non-recurring “administrative fee” are invalid (see June 2014 Risk Note).
This decision ended a long debate and gave rise to a large number of claims for repayment of such administrative fees. A more recent decision of the BGH considered the limitation of such claims.1
There had been uncertainty as to which loan agreements consumers would be able to reclaim fees under. Under German law, such claims are time-barred from the earlier of two dates: (i) ten years from the time the claim arose, or (ii) three years from the end of the year in which the damage occurred and the claimant knew or should have known about the relevant circumstances. Bank customers knew from the start of their contract if an administrative fee was included in their loan agreement. However, it was unclear whether or not the clause was valid and the fee could be reclaimed. (Previous BGH case law had suggested that these administrative fee clauses were valid; it was in 2011 courts started to find such clauses invalid). Whether this change of the legal assessment was relevant for a bank customer’s knowledge (which in turn was required for the start of the limitation period) has been the subject of debate.
The BGH has now held that, due to the previous legal uncertainty, the three-year limitation period for consumers reclaiming administrative fees from banks only began to run from the end of 2011. The BGH stated that a claimant only has sufficient knowledge of a claim if, on the basis of the known facts, a legal action has reasonable prospect of success. A highly uncertain question of law may, therefore, postpone the start of the limitation period. The BGH concluded that bank customers could reasonably have been expected to initiate legal action for repayment only when several Higher Regional Courts found such clauses invalid in 2011.
This means that, in the absence of special circumstances, customer claims for repayment of administrative fees resulting from older loan agreements, concluded from 2004 until 2011, typically only became time-barred on 31 December 2014. In the immediate aftermath of this BGH decision, many consumers instituted proceedings against banks and banks, active in retail business are likely to experience an increased litigation portfolio as a result.
- German Federal Court of Justice, judgment dated 28 October 2014, file No XI ZR 348/13.